Long-term Effects of Shapella Upgrade: Yield, Competition, and LSD-Fi

Effects of Shapella Upgrade: Yield, Competition, and LSD-Fi over time.

Researcher Lawrence Lee from Mint Ventures explains the possible changes in ETH staking returns in the future and discusses the competitive landscape of the staking industry, as well as the potential impact of LSDfi on the ETH staking ecosystem.

After the Merge, besides receiving rewards from the consensus layer, staking Ethereum can also earn rewards from the execution layer, with a total APR of 5.4%. The consensus layer reward is ETH issued by the Ethereum network, and its release increases as the total staked amount increases, but the staking APR decreases as the total staked amount increases. The execution layer reward includes two parts: 1) the priority fee, which is the part of gas paid by users that is not destroyed, and 2) MEV. The common feature of these two parts is that their profits do not increase as the total staked amount increases, which is the main variable of ETH staking rewards.

According to Lido’s statistics, after the Merge, the consensus layer APR slowly decreases as the total staked amount increases, while the execution layer APR changes greatly, averaging around 1.5%, making staking yields reach 5%. When on-chain activity is frequent, the execution layer APR can even exceed the consensus layer APR, making staking yields approach 10%. In terms of ETH staking earnings composition, taking into account the impact of MEV burn and L2, when ETH staking accounts for 30%, ETH staking rewards are likely to decrease to 3% (consensus layer reward 2.4%, execution layer reward 0.6%). This yield will have a significant impact on users’ enthusiasm for staking.

Based on the recent LSDfi craze, more and more LSD projects will go live, and what happens on unshETH, Agility, and Lybra may be played out in the next 3-6 months, with LSD continuing to generate APR far beyond that of the Ethereum chain, possibly forming a self-reinforcing flywheel effect between LSD and LSDfi. Eventually, all DeFi protocols may be referred to as LSDfi in a broader sense, as they all more or less support LSDfi. Obviously, LSD can capture the beta of LSDfi. The popularity of LSDfi will further promote the share of liquid staking in the overall staking track.

Reference: https://research.mintventures.fund/2023/06/09/the-potential-effects-of-lsd-fi-may-bring-following-the-shapella-upgrade/

We will continue to update Blocking; if you have any questions or suggestions, please contact us!

Share:

Was this article helpful?

93 out of 132 found this helpful

Discover more

Blockchain

FTX Founder’s Shady Messaging Moves: The Signal of Trouble

Sam Bankman-Fried's Criminal Trial is Underway

Blockchain

IMF urges Philippine central bank to collect crypto exchange transaction data and use data for macroeconomic analysis

According to Cointelegraph reported on January 2, the International Monetary Fund (IMF) urged the Philippine Central ...

Blockchain

Life After the Collapse of Sanjian Capital: Surfing, Meditation, and World Travel for the Founders

When their hedge fund failed, the entire industry collapsed. The resulting crisis drained the savings of millions of ...

Bitcoin

The Ripple case: Over or Underdog Victory?

Missed the latest in crypto this weekend? Catch up on the top stories here!

Blockchain

The Digital Currency in the Eyes of Economists - The Exchange: The Glory of the King

Digital Currency in the Eyes of Economists: Series Preface The digital currency in the eyes of economists – Cla...

DeFi

White Paper's publication has reached its 15th year, how has the Bitcoin ecosystem evolved?

In the world of encryption, a document's status is equivalent to the Bible and the Declaration of Independence. It is...